Doubts have been cast over the legality of Lancaster City Council's decision to let the owners of Heysham power stations defer a £1.7million rate payment.

Legal advice from the Nuclear Free Local Authorities group argues that the agreement should have been referred to the European Commission, because it constitutes a ' state subsidy'.

Green Cllr Jon Barry said: "I will be writing to the Chief Solicitor asking what the legal position is.

I am concerned that we may have acted illegally.

I am especially concerned that councillors were not made aware of this last week."

Jamie Woolley, a solicitor for the Sheffield-based NFLA, said: "I would expect people concerned about the legality of such payments to take the matter up with the Chief Solicitor and Director of Finance at the relevant local authorities as well as the audit commission, the DTI and the Competition Directorate.

We are writing to a number of authorities in case they may have overlooked this dimension."

Rate relief from councils is considered by the European Commission to be ' state aid' and any legal challenge is likely to rest on whether a rate deferral can be considered in the same way.

The city council is still refusing to comment on the rate relief decision, which was made following the exclusion of the public and the press.

Meanwhile, a Government loan to the company of £650 million is to be challenged in the High Court, after its legality was questioned by the European Union's Competition Commission.

State aid, which would also include the Government loan, was limited to £100,000 (around £ 60,000) in any three-year period, said Mr Woolley.